As the world’s population rises inexorably, centers of economic activity are shifting, not merely globally but also regionally. And as the economic tides surge on to new shores, the search for well-trained and talented employees will intensify.
The writing is already on the wall. Excluding Japan, Asia currently accounts for 13 percent of the world’s gross domestic product, while Western Europe accounts for more than 30 percent. Within the next 20 years, the two economic blocs will almost converge.
At the same time, skills shortages in the US and many parts of Europe are adding to the concerns of business people who face growing competition from Asia as well as new economic powerhouses such as India and China.
A McKinsey survey of more than 3,000 business executives across the world in September 2006 found that almost two-thirds were primarily concerned about the availability of well-trained labour. A shortage of high-quality employees remains the top issue for employers, regardless of their company’s size or location. 1
Skilled trades are at a premium
When Manpower, a leading employment agency, surveyed 37,000 employers in 27 countries, it found that four out of ten were having difficulty filling vacancies. In particularly short supply are skilled manual trades people such as electricians, carpenters, plumbers and masons, especially in Europe. Jeffrey A. Joerres, CEO of Manpower, says: “Demographic shifts and economic factors are causing more shortages in the workforce which could ultimately threaten the engines of world economic growth and prosperity.” 2
He’s looking at a sellers’ market.
Gains in worker productivity in mature economies may be able to compensate for some of the aging effect, but it looks as if the expected decline in worker numbers and output will lead to lower growth, at least at first. The shortage can only worsen as the present generation of “baby boomers” retires, with fewer and fewer young people to replace them. Pointing out that the first crop of “baby boomers” will retire in 2008, a Deloitte Research study says that in the public sector, countries such as Canada, Australia and the United States could lose more than a third of their government employees by 2010. 3
Two million US baby-boomers retiring
At the other end of the age range, the picture is not encouraging. In the US, more than eight out of ten manufacturers are said to be experiencing a shortage of qualified workers that cuts across industry sectors. The Deloitte study forecasts that colleges in the US will graduate only 198,000 students to fill the gap left by two million “baby boomers” retiring in the next decade.
Scientists in short supply…
Engineers, scientists and skilled production employees such as machinists, craft workers and technicians, are in particularly short supply, as highlighted by the National Association of Manufacturers (NAM) and the Manufacturing Institute. John Engler, president of the NAM, said: “The survey exposes the widening gap between the dwindling supply of skilled workers and the growing demands of the modern manufacturing workplace.” And Jerry Jasinowski, president of the Manufacturing Institute, commented: “It is emerging as our nation’s most pressing business issue.” 4
Where have all the scientists gone?
The future offers little comfort for employers, either. Only 5% of US students currently graduate with science or engineering degrees. In China, the figure is 42%. In the UK, employers have been warning about this particular shortage for some time, and now the country’s power and water companies are beginning to worry about what will happen when the present generation of skilled engineers retires. A spokesman for the Engineering Employers’ Federation in the UK explained: “There is a problem with the demographic gap as we haven’t had a natural flow of graduates coming through.”
Savings boost is imperative
Changing demographics are also likely to have a significant effect on global wealth, and the ramifications of that in our global village could spread into every corner of the world. Most of the world’s wealth is created and held in the very countries where populations are ageing most rapidly - Japan, the US and western Europe.
…and so are savings.
As McKinsey points out in a research paper: “Since people save less after they retire, and younger generations in their prime earning years are less frugal than their elders were, savings rates are set to fall dramatically. “ This could have dire consequences for living standards in wealthy and poor nations alike, but a concerted effort to boost savings rates, shrink government deficits, and increase returns on financial assets could help avert this outcome. 5
To bolster its case, McKinsey cites a study of Germany, Italy, Japan, the UK and the US which forecasts that by 2024, growth in household financial wealth will be 36%, or USD 31 trillion, less than it would have been if historical rates of expansion had persisted. It adds bleakly: “This reality will depress investment, growth and living standards in the largest, wealthiest economies and threaten the future development of poor ones.”
China joins the money-go-round
The trend is already evident in some European countries and in the United States, where personal savings are at historic low levels (about two percent of national income). By contrast, China has emerged as a global savings power over the past two decades, with a rate of almost half its gross domestic product. Other Asian countries and the Middle East are also generating a larger share of the world’s savings pot.
Ironically, one result is that capital from Asia and emerging markets is finding its way to the United States. In a speech in March this year, Andrew Sentance, a member of the Bank of England’s Monetary Policy Committee, pointed out that this is totally in the opposite direction to which we might expect. He added: “Countries like China, with abundant labour supplies and good investment opportunities, might be expected to attract capital from rich countries such as the United States with a high stock of savings, but in fact, capital is flowing in the reverse direction.”
Another new capital flow is being seen around the world. Migrating workers, drawn to countries where they can earn far more than in their native land, are saving and sending back to their families money that contributes significantly to their homeland’s national wealth.
Source:
1) September 2006 McKinsey Quarterly global survey of business executives, www.mckinseyquarterly.com
2) Management Issues News, 30 March 2007, www.management-issues.com
3) It’s 2008: Do you know where your talent is? Deloitte Research, www.deloitte.com/research
4) 2005 Skills Gap Report – A Survey of the American Manufacturing Workforce, www.nam.org
5) The demographic deficit: How aging will reduce global wealth, March 2005, www.mckinseyquarterly.com
